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Adobe Reports Record Revenue in Q3 Fiscal 2023

  • Company achieves record Q3 net new Digital Media ARR of $464 million
  • Company delivers EPS growth exceeding 20 percent year over year

Adobe (Nasdaq:ADBE) today reported financial results for its third quarter fiscal year 2023 ended Sept. 1, 2023.

“We are unleashing a new era of AI-enhanced creativity around the world with innovations across our product portfolio,” said Shantanu Narayen, chair and CEO, Adobe. “The recent launches of Firefly, Express, Creative Cloud and GenStudio make Adobe magic available to millions of users.”

“Adobe delivered world-class margins and earnings in Q3, while making significant investments in our technology platforms,” said Dan Durn, executive vice president and CFO, Adobe. “Our innovation engine, global reach and strong operational rigor position us to capture the massive opportunities ahead.”

Third Quarter Fiscal Year 2023 Financial Highlights

  • Adobe achieved revenue of $4.89 billion in its third quarter of fiscal year 2023, which represents 10 percent year-over-year growth or 13 percent in constant currency. Diluted earnings per share was $3.05 on a GAAP basis and $4.09 on a non-GAAP basis.
  • GAAP operating income in the third quarter was $1.70 billion and non-GAAP operating income was $2.26 billion. GAAP net income was $1.40 billion and non-GAAP net income was $1.88 billion.
  • Cash flows from operations were $1.87 billion.
  • Remaining Performance Obligations (“RPO”) exiting the quarter were $15.72 billion.
  • Adobe repurchased approximately 2.1 million shares during the quarter.

Third Quarter Fiscal Year 2023 Business Segment Highlights

  • Digital Media segment revenue was $3.59 billion, which represents 11 percent year-over-year growth or 14 percent in constant currency. Creative revenue grew to $2.91 billion, representing 11 percent year-over-year growth or 14 percent in constant currency. Document Cloud revenue was $685 million, representing 13 percent year-over-year growth or 15 percent in constant currency.
  • Net new Digital Media Annualized Recurring Revenue (“ARR”) was $464 million, exiting the quarter with Digital Media ARR of $14.60 billion. Creative ARR grew to $11.97 billion and Document Cloud ARR grew to $2.63 billion.
  • Digital Experience segment revenue was $1.23 billion, representing 10 percent year-over-year growth or 11 percent in constant currency. Digital Experience subscription revenue was $1.10 billion, representing 12 percent year-over-year growth or 13 percent in constant currency.

Financial Targets

Adobe is providing fourth quarter targets that factor in current macroeconomic conditions and typical year-end seasonal strength.

The following table summarizes Adobe’s fourth quarter fiscal year 2023 targets:

Total revenue

$4.975 billion to $5.025 billion

Digital Media net new ARR

~$520 million

Digital Media segment revenue

$3.67 billion to $3.70 billion

Digital Experience segment revenue

$1.25 billion to $1.27 billion

Digital Experience subscription revenue

$1.11 billion to $1.13 billion

Tax rate

GAAP: ~18.0%

Non-GAAP: ~18.5%

Earnings per share1

GAAP: $3.10 to $3.15

Non-GAAP: $4.10 to $4.15

1 Targets assume share count of ~458 million for fourth quarter fiscal year 2023.

Adobe to Host Conference Call

Adobe will webcast its third quarter fiscal year 2023 earnings conference call today at 2:00 p.m. Pacific Time from its investor relations website: www.adobe.com/ADBE. Earnings documents, including Adobe management’s prepared conference call remarks with slides and an investor datasheet are posted to Adobe’s investor relations website in advance of the conference call for reference.

Forward-Looking Statements, Non-GAAP and Other Disclosures

This press release contains forward-looking statements, including those related to business momentum, our market opportunity, market trends, current macroeconomic conditions, fluctuations in foreign currency exchange rates, strategic investments, customer success, revenue, operating margin, seasonality, annualized recurring revenue, tax rate on a GAAP and non-GAAP basis, earnings per share on a GAAP and non-GAAP basis, and share count, all of which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to: failure to compete effectively; failure to develop, acquire, market and offer products and services that meet customer requirements; introduction of new technology; failure to realize the anticipated benefits of past or future acquisitions; information security and privacy; potential interruptions or delays in hosted services provided by us or third parties; risks associated with cyber-attacks; complex sales cycles; failure to effectively manage critical strategic third-party business relationships; changes in accounting principles and tax regulations; fluctuations in subscription renewal rates; risks related to the timing of revenue recognition from our subscription offerings; uncertainty in the financial markets and economic conditions in the countries where we operate; geopolitical and macroeconomic conditions, including the Russia-Ukraine war; and other various risks associated with being a multinational corporation. For a discussion of these and other risks and uncertainties, please refer to Adobe’s Annual Report on Form 10-K for our fiscal year 2022 ended Dec. 2, 2022, and Adobe's Quarterly Reports on Form 10-Q issued in fiscal year 2023.

The financial information set forth in this press release reflects estimates based on information available at this time. These amounts could differ from actual reported amounts stated in Adobe’s Quarterly Report on Form 10-Q for our fiscal quarter ended Sept. 1, 2023, which Adobe expects to file in late Sept. 2023. Adobe assumes no obligation to, and does not currently intend to, update these forward-looking statements.

A reconciliation between GAAP and non-GAAP earnings results and financial targets is provided at the end of this press release and on Adobe’s investor relations website.

About Adobe

Adobe is changing the world through digital experiences. For more information, visit www.adobe.com.

©2023 Adobe. All rights reserved. Adobe, Creative Cloud, Document Cloud and the Adobe logo are either registered trademarks or trademarks of Adobe (or one of its subsidiaries) in the United States and/or other countries. All other trademarks are the property of their respective owners.

Condensed Consolidated Statements of Income

(In millions, except per share data; unaudited)

 

Three Months Ended

 

Nine Months Ended

 

September 1, 2023

 

September 2, 2022

 

September 1, 2023

 

September 2, 2022

Revenue:

 

 

 

 

 

 

 

Subscription

$

4,631

 

 

$

4,128

 

 

$

13,521

 

 

$

12,156

 

Product

 

96

 

 

 

126

 

 

 

346

 

 

 

417

 

Services and other

 

163

 

 

 

179

 

 

 

494

 

 

 

508

 

Total revenue

 

4,890

 

 

 

4,433

 

 

 

14,361

 

 

 

13,081

 

 

 

 

 

 

 

 

 

Cost of revenue:

 

 

 

 

 

 

 

Subscription

 

447

 

 

 

413

 

 

 

1,317

 

 

 

1,216

 

Product

 

7

 

 

 

8

 

 

 

23

 

 

 

27

 

Services and other

 

126

 

 

 

125

 

 

 

380

 

 

 

354

 

Total cost of revenue

 

580

 

 

 

546

 

 

 

1,720

 

 

 

1,597

 

 

 

 

 

 

 

 

 

Gross profit

 

4,310

 

 

 

3,887

 

 

 

12,641

 

 

 

11,484

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

881

 

 

 

775

 

 

 

2,584

 

 

 

2,214

 

Sales and marketing

 

1,337

 

 

 

1,266

 

 

 

3,983

 

 

 

3,671

 

General and administrative

 

353

 

 

 

319

 

 

 

1,041

 

 

 

879

 

Amortization of intangibles

 

42

 

 

 

43

 

 

 

126

 

 

 

127

 

Total operating expenses

 

2,613

 

 

 

2,403

 

 

 

7,734

 

 

 

6,891

 

 

 

 

 

 

 

 

 

Operating income

 

1,697

 

 

 

1,484

 

 

 

4,907

 

 

 

4,593

 

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

Interest expense

 

(27

)

 

 

(28

)

 

 

(85

)

 

 

(84

)

Investment gains (losses), net

 

6

 

 

 

(6

)

 

 

12

 

 

 

(23

)

Other income (expense), net

 

67

 

 

 

6

 

 

 

157

 

 

 

5

 

Total non-operating income (expense), net

 

46

 

 

 

(28

)

 

 

84

 

 

 

(102

)

Income before income taxes

 

1,743

 

 

 

1,456

 

 

 

4,991

 

 

 

4,491

 

Provision for income taxes

 

340

 

 

 

320

 

 

 

1,046

 

 

 

911

 

Net income

$

1,403

 

 

$

1,136

 

 

$

3,945

 

 

$

3,580

 

Basic net income per share

$

3.07

 

 

$

2.42

 

 

$

8.62

 

 

$

7.60

 

Shares used to compute basic net income per share

 

456

 

 

 

469

 

 

 

458

 

 

 

471

 

Diluted net income per share

$

3.05

 

 

$

2.42

 

 

$

8.59

 

 

$

7.57

 

Shares used to compute diluted net income per share

 

459

 

 

 

469

 

 

 

459

 

 

 

473

 

Condensed Consolidated Balance Sheets

(In millions; unaudited)

 

September 1, 2023

 

December 2, 2022

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

6,601

 

 

$

4,236

 

Short-term investments

 

915

 

 

 

1,860

 

Trade receivables, net of allowances for doubtful accounts of $18 and $23, respectively

 

1,851

 

 

 

2,065

 

Prepaid expenses and other current assets

 

1,043

 

 

 

835

 

Total current assets

 

10,410

 

 

 

8,996

 

 

 

 

 

Property and equipment, net

 

2,036

 

 

 

1,908

 

Operating lease right-of-use assets, net

 

373

 

 

 

407

 

Goodwill

 

12,800

 

 

 

12,787

 

Other intangibles, net

 

1,167

 

 

 

1,449

 

Deferred income taxes

 

1,065

 

 

 

777

 

Other assets

 

1,239

 

 

 

841

 

Total assets

$

29,090

 

 

$

27,165

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

Trade payables

$

314

 

 

$

379

 

Accrued expenses

 

1,714

 

 

 

1,790

 

Debt

 

 

 

 

500

 

Deferred revenue

 

5,375

 

 

 

5,297

 

Income taxes payable

 

857

 

 

 

75

 

Operating lease liabilities

 

74

 

 

 

87

 

Total current liabilities

 

8,334

 

 

 

8,128

 

 

 

 

 

Long-term liabilities:

 

 

 

Debt

 

3,633

 

 

 

3,629

 

Deferred revenue

 

108

 

 

 

117

 

Income taxes payable

 

498

 

 

 

530

 

Operating lease liabilities

 

389

 

 

 

417

 

Other liabilities

 

352

 

 

 

293

 

Total liabilities

 

13,314

 

 

 

13,114

 

 

 

 

 

Stockholders’ equity:

 

 

 

Preferred stock

 

 

 

 

 

Common stock

 

 

 

 

 

Additional paid-in-capital

 

11,195

 

 

 

9,868

 

Retained earnings

 

32,012

 

 

 

28,319

 

Accumulated other comprehensive income (loss)

 

(285

)

 

 

(293

)

Treasury stock, at cost

 

(27,146

)

 

 

(23,843

)

Total stockholders’ equity

 

15,776

 

 

 

14,051

 

Total liabilities and stockholders’ equity

$

29,090

 

 

$

27,165

 

Condensed Consolidated Statements of Cash Flows

(In millions; unaudited)

 

 

Three Months Ended

 

September 1, 2023

 

September 2, 2022

Cash flows from operating activities:

 

 

 

Net income

$

1,403

 

 

$

1,136

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation, amortization and accretion

 

218

 

 

 

216

 

Stock-based compensation

 

442

 

 

 

378

 

Unrealized investment (gains) losses, net

 

(5

)

 

 

6

 

Other non-cash adjustments

 

(87

)

 

 

112

 

Changes in deferred revenue

 

102

 

 

 

67

 

Changes in other operating assets and liabilities

 

(200

)

 

 

(211

)

Net cash provided by operating activities

 

1,873

 

 

 

1,704

 

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases, sales and maturities of short-term investments, net

 

236

 

 

 

31

 

Purchases of property and equipment

 

(91

)

 

 

(125

)

Purchases and sales of long-term investments, intangibles and other assets, net

 

 

 

 

(9

)

Net cash provided by (used for) investing activities

 

145

 

 

 

(103

)

 

 

 

 

Cash flows from financing activities:

 

 

 

Repurchases of common stock

 

(1,000

)

 

 

(1,200

)

Proceeds from treasury stock re-issuances, net of taxes paid related to net share settlement of equity awards

 

124

 

 

 

103

 

Other financing activities, net

 

5

 

 

 

37

 

Net cash used for financing activities

 

(871

)

 

 

(1,060

)

Effect of exchange rate changes on cash and cash equivalents

 

(2

)

 

 

(36

)

Net change in cash and cash equivalents

 

1,145

 

 

 

505

 

Cash and cash equivalents at beginning of period

 

5,456

 

 

 

3,365

 

Cash and cash equivalents at end of period

$

6,601

 

 

$

3,870

 

Non-GAAP Results

The following table shows Adobe’s GAAP results reconciled to non-GAAP results included in this release.

(In millions, except per share data)

Three Months Ended

 

September 1,

2023

 

September 2,

2022

 

June 2,

2023

Operating income:

 

 

 

 

 

 

 

 

 

 

 

GAAP operating income

$

1,697

 

 

$

1,484

 

 

$

1,624

 

Stock-based and deferred compensation expense

 

448

 

 

 

371

 

 

 

439

 

Amortization of intangibles

 

92

 

 

 

100

 

 

 

95

 

Acquisition-related expenses (*)

 

27

 

 

 

 

 

 

22

 

Non-GAAP operating income

$

2,264

 

 

$

1,955

 

 

$

2,180

 

 

 

 

 

 

 

Net income:

 

 

 

 

 

 

 

 

 

 

 

GAAP net income

$

1,403

 

 

$

1,136

 

 

$

1,295

 

Stock-based and deferred compensation expense

 

448

 

 

 

371

 

 

 

439

 

Amortization of intangibles

 

92

 

 

 

100

 

 

 

95

 

Acquisition-related expenses (*)

 

27

 

 

 

 

 

 

22

 

Investment (gains) losses, net

 

(6

)

 

 

6

 

 

 

(5

)

Income tax adjustments

 

(86

)

 

 

(18

)

 

 

(52

)

Non-GAAP net income

$

1,878

 

 

$

1,595

 

 

$

1,794

 

 

 

 

 

 

 

Diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

GAAP diluted net income per share

$

3.05

 

 

$

2.42

 

 

$

2.82

 

Stock-based and deferred compensation expense

 

0.98

 

 

 

0.79

 

 

 

0.96

 

Amortization of intangibles

 

0.20

 

 

 

0.21

 

 

 

0.21

 

Acquisition-related expenses (*)

 

0.06

 

 

 

 

 

 

0.05

 

Investment (gains) losses, net

 

(0.01

)

 

 

0.01

 

 

 

(0.01

)

Income tax adjustments

 

(0.19

)

 

 

(0.03

)

 

 

(0.12

)

Non-GAAP diluted net income per share

$

4.09

 

 

$

3.40

 

 

$

3.91

 

 

 

 

 

 

 

Shares used in computing diluted net income per share

 

459

 

 

 

469

 

 

 

459

 

The following table shows Adobe’s third quarter fiscal year 2023 GAAP tax rate reconciled to the non-GAAP tax rate included in this release.

 

Third Quarter

Fiscal 2023

Effective income tax rate:

 

 

 

GAAP effective income tax rate

 

19.5

%

Income tax adjustments

 

1.0

 

Stock-based and deferred compensation expense

 

(1.6)

 

Amortization of intangibles

 

(0.3)

 

Acquisition-related expenses (*)

 

(0.1)

 

Non-GAAP effective income tax rate (**)

 

18.5

%

(*) Includes deal costs and certain professional fees associated with the planned acquisition of Figma

(**) Represents Adobe’s fixed long-term non-GAAP tax rate based on three-year projections and currently available information

Reconciliation of GAAP to Non-GAAP Financial Targets

The following tables show Adobe's fourth quarter fiscal year 2023 financial targets reconciled to non-GAAP financial targets included in this release.

(Shares in millions)

Fourth Quarter Fiscal 2023

 

Low

 

High

Diluted net income per share:

 

 

 

 

 

 

 

GAAP diluted net income per share

$

3.10

 

 

$

3.15

 

Stock-based and deferred compensation expense

 

0.98

 

 

 

0.98

 

Amortization of intangibles

 

0.20

 

 

 

0.20

 

Acquisition-related expenses (*)

 

0.07

 

 

 

0.07

 

Income tax adjustments

 

(0.25)

 

 

 

(0.25)

 

Non-GAAP diluted net income per share

$

4.10

 

 

$

4.15

 

 

 

 

 

Shares used to compute diluted net income per share

458

 

 

458

 

 

Fourth Quarter

Fiscal 2023

Effective income tax rate:

 

 

 

GAAP effective income tax rate

 

18.0

%

Stock-based and deferred compensation expense

 

(1.6)

 

Amortization of intangibles

 

(0.3)

 

Acquisition-related expenses (*)

 

(0.1)

 

Income tax adjustments

 

2.5

 

Non-GAAP effective income tax rate (**)

 

18.5

%

(*) Includes deal costs and certain professional fees associated with the planned acquisition of Figma

(**) Represents Adobe’s fixed long-term projected non-GAAP tax rate based on three-year projections and currently available information

Use of Non-GAAP Financial Information

Adobe continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Adobe uses non-GAAP financial information to evaluate its ongoing operations and for internal planning and forecasting purposes. Adobe's management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Adobe presents such non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Adobe's operating results. Adobe believes these non-GAAP financial measures are useful because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. This allows institutional investors, the analyst community and others to better understand and evaluate our operating results and future prospects in the same manner as management.

Adobe's management believes it is useful for itself and investors to review, as applicable, both GAAP information as well as non-GAAP measures, which may exclude items such as stock-based and deferred compensation expenses, amortization of intangibles, investment gains and losses, the related tax impact of all of these items, income tax adjustments, and the income tax effect of the non-GAAP pre-tax adjustments from the provision for income taxes. Adobe uses these non-GAAP measures in order to assess the performance of Adobe's business and for planning and forecasting in subsequent periods. Whenever such a non-GAAP measure is used, Adobe provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed above.

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